Despite Norway’s sovereign wealth fund having a hard time finding suitable properties in Tokyo and in other core Asian cities, sovereign investors in the aggregate have steadily put capital to work in real estate. Even micro sovereign funds like the one owned by the Republic of Nauru, has ownership in Houston office real estate.
The low-yield environment has been a defining factor on why sovereign funds invest directly into real estate or property funds. The decade-long subtle manipulation of interest rates to stave off a global depression has forced cash-rich sovereign funds to park money into these concrete towers in central business districts. These mega institutional investors, some smaller in assets, continue to seek out experienced real estate partners to deposit their capital in niche deals. Whether its Gulf funds like the Qatar Investment Authority involved with the Empire State Building or Hudson Yards, or the Norway Government Pension Fund Global’s all-encompassing European logistics partnership, the demand for suitable institutional real estate in developed market appears to remain valid.
According to data from the Sovereign Wealth Fund Transaction Database, which tracks direct transactions made by sovereign funds, pensions and other public funds, wealth funds directly invested a staggering US$ 31.2 billion into the real estate sector versus US$ 12.3 billion in 2011. This stark contrast demonstrates three important points. First, more wealth funds are going direct or participating in co-investments. This means sovereign investors are seeking partners whether they are real estate firms, developers, pensions, life insurance companies, real estate investment trusts or wealthy family offices. For example, the GIC had formed a joint venture with affiliates of Boston-based Beacon Capital Partners, LLC to swoop up a portfolio of Washington D.C. metro properties that included the Lafayette Center complex.
Sovereign wealth is attracted to the Golden State over its diverse terrain, demographics, entertainment industry and being a global hub for innovation (San Francisco Bay Area). The Qatar Investment Authority (QIA) has been aggressive in wanting to invest in California institutional real estate. The QIA wanted to outright acquire a portfolio of offices owned by The Blackstone Group, in which the private equity firm became the owner in part of its 2007 acquisition of Equity Office Properties Trust. The QIA ended up partnering with Douglas Emmett, Inc., a real estate investment trust, to acquire these office properties once they hit the market such as 12100 Wilshire Boulevard, 233 Wilshire Boulevard and 1299 Ocean Avenue.
Going into 2017, it appears wealth funds continue to seek out high-quality real estate assets to help diversify their portfolios.
Student Housing and the Resiliency of the Education Sector
Hotels and resorts can be corrosive investments in downward economies, while the U.S. education sector has been resilient, even during the global financial crisis back in 2008. Some sovereign funds have found success in student housing. GIC Private Limited has constructed a portfolio of student housing in Australia, the United Kingdom and the United States, betting on ever-growing education sector. In March 2017, the GIC entered into a venture with the Canada Pension Plan Investment Board (CPPIB) and The Scion Group LLC, to invest and oversee a massive portfolio of student housing assets in the United States. The GIC also has a U.K. student housing venture with Unite Group Plc.
Going into 2017, it appears wealth funds continue to seek out high-quality real estate assets to help diversify their portfolios. The excessive demand from sovereign wealth funds and other real estate players have caused many pensions and real estate private equity shops to be net sellers so far in 2017. This recycling of capital has been a boon for real estate investment firms.
Oslo-based Scatec Solar ASA, a publicly-traded independent power producer operating in the emerging market solar development space, plans to construct and own a 800 mega watt photovoltaic solar power plant in Chandpur, Bangladesh. Scatec Solar has solar assets scattered across numerous emerging markets such as South Africa, Rwanda, Honduras, Egypt, Jordan and the Czech Republic.
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The Alaska Permanent Fund Corporation (APFC) embarked on a major shift in its real estate portfolio by selling a 50% ownership stake in Denver-based Simpson Housing LLLP for US$ 1.4 billion. Simpson Housing had made up roughly 24.7% of APFC’s US$ 5.6 billion real estate portfolio. The other owner of Simpson Housing is that State of Michigan Retirement Systems.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
The Ireland Strategic Investment Fund (ISIF) committed €10 million to Vectra Networks, Inc., a San Jose, U.S.-based cybersecurity company. The investment capital will assist Vectra in creating a research and development center in Dublin.
ISIF is part of a larger funding round of €30 million. These other investors include Khosla Ventures, Accel Partners, DAG Ventures, AI Ventures, AME Cloud Ventures and Wipro Ventures.
Kevin Dillon, who is the former Head of Microsoft Ireland and a Managing Partner at Atlantic Bridge, will join the board of directors at Vectra.
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